Definitions

Question 1

Gross National Product

Answer 1

• Value of all the goods and services produced in an economy, plus the value of the goods and services imported, less the goods and services exported
• measures the income of an economy, the quantity of goods and services the economy can afford to purchase

Question 2

Micro economics

Answer 2

Detailed treatment of individual decisions about particular commodities

Question 3

Macroeconomics

Answer 3

Is the study of the economy as a system

Interactions in the economy as a whole

Question 4

Aggregate supply

Answer 4

Is aggregate supply itself and aggregate supply function

Aggregate supply itself - productive capacity available in the economy to produce goods and services

Aggregate supply function - schedule detailing the national products that would be supplied at each general price level

Question 5

Aggregate demand

Answer 5

Aggregate demand itself and aggregate demand function

Aggregate demand itself - total sum of nominal expenditures on goods and services in the economy

Aggregate demand function - schedule detailing the quantity of national product that would be purchased at each general price level

Question 6

Inflation rate

Answer 6

Is the percentage increase in the average price of goods and services

Question 7

Economic growth

Answer 7

The growth rate of real GDP ( or real output) over a determine period of time (e.g. Annual, quarterly etc)

Question 8

Circular flow

Answer 8

Shows how real resources and financial payments flow between firms and households

Question 9

Fiscal policy

Answer 9

Government policy on spending and taxes with the purpose of stabilising the economy ( keep output close to potential output)

Made by treasury in gov

Question 10

Fiscal stance

Answer 10

Shows the effect of fiscal policy on demand and output

Question 11

Expansionary fiscal policy aims to…

Answer 11

Raise national income

Question 12

Contractive fiscal policy aims to…

Answer 12

Reduce national income

Question 13

Monetary policy

Answer 13

Concerns money supply. Controlled by the central bank.

Affects C and I by altering interest rates.

Question 14

Money supply

Answer 14

Currency in circulation outside the baking system plus deposits of commercial banks and building societies

(Value of the stock of the medium of exchange in circulation)

Question 15

Open market operation

Answer 15

Occurs when central bank alters the monetary base by buying or selling financial securities in the open market

Question 16

Real GDP

Answer 16

At constant prices

Question 17

Nominal GNP

Answer 17

At current prices

Question 18

Gross Domestic Product

Answer 18

• monetary value of economic activity in a period of time
• market value of all the final goods and services produced within a country in a given period of time
• total value of an economies domestic output of goods and services

Question 19

Money

Answer 19

Any generally accepted means of payment for delivery of goods or settlement of debt

Question 20

Money as a store

Answer 20

Money is a store of value because it can be used to make future purchases

Question 21

Bank reserves

Answer 21

Money available in the bank to meet possible withdrawals by depositors

Question 22

Reserve ratio

Answer 22

Ratio of reserves to deposits

Question 23

Commercial banks

Answer 23

Financial intermediaries licensed to make loans and issue deposits, including deposits against which cheques can be written

Question 24

Monetary Base

Answer 24

Quantity of notes and coin in private circulation plus the quantity held by the banking system

Question 25

Money multiplier

Answer 25

Is the ratio of the money stock to the monetary base

Question 26

Cost of holding money

Answer 26

Is the interest given up by holding money rather than bonds

Question 27

Transactions Motive

Answer 27

The transactions motive for holding money reflects the fact that payments and receipts are not synchronised

Question 28

Asset motive

Answer 28

The asset motive for holding money reflects dislike of risk. People sacrifice a high average rate of return to obtain a portfolio with a lower but safer rate of return

Question 29

Required reserve ratio

Answer 29

Minimum ratio of cash reserves to deposits that banks are required to hold

Question 30

Demand management

Answer 30

Uses monetary and fiscal policy to stabilise output near potential output

Question 31

Inflation

Answer 31

Is a persistent increase in the general price level of goods and services in an economy over a period of time ( represented by pie in macroeconomics)

Question 32

Potential output

Answer 32

All inputs fully employed

Question 33

Real money supply

Answer 33

M/P

Question 34

Leakage from circular flow...

Answer 34

Is money no longer recycled from households to firms

Question 35

Injection to circular flow

Answer 35

Is money that flows to firms without being cycled through households

Question 36

Nominal exchange rate

Answer 36

Price of foreign currency in this market

Question 37

Real exchange rate

Answer 37

The relative price of foreign goods in terms of domestic goods It depends on the nominal exchange rate, the domestic price level and the foreign price level

Question 38

Stock of money

Answer 38

A given quantity of money in the economy

Question 39

Flow of money

Answer 39

Money used to carry out transactions per unit of time

Question 40

Unemployment

Answer 40

Those who are available for work at the current wage rate, but are without a job

Question 41

Labour force

Answer 41

Those employed plus those unemployed

Question 42

Rate of inflation

Answer 42

Measures the annual percentage increase in prices

Question 43

Hyper inflation

Answer 43

Means high inflation. Often defined as 50% per month.

Question 44

Stagflation

Answer 44

High inflation in periods of high unemployment

Question 45

Comparative Advantage

Answer 45

A country has a comparative advantage in producing a good if the opportunity cost of producing that good in terms of other goods is lower in that country that it is in other countries

Question 46

Opportunity cost

Answer 46

The number of a determined good that could have been produced with the resources used to produce another good

Question 47

Domestic supply (DS) (international)

Answer 47

Production of commodity Q supplied by a country over a determined period of time (month, year etc)

Question 48

Foreign supply (FS) (international)

Answer 48

Production of commodity Q supplied by a foreign country over a determined period of time

Question 49

Domestic demand (DD) (international)

Answer 49

Quantity of good Q demanded by consumers in a country over a determined period of time

Question 50

Foreign demand (FD) ( international )

Answer 50

Quantity of good Q demanded by consumers in a foreign country over a determined period of time

Question 51

Domestic equilibrium in Autarky (international)

Answer 51

Quantities of domestic demand and domestic supply that are stable under the internal or domestic price of commodity Q

Question 52

Domestic equilibrium in an open economy (international)

Answer 52

Quantities of domestic demand and domestic supply that are stable under the external price of commodity Q

Question 53

Autarky

Answer 53

Closed economy - countries do not trade

Question 54

Domestic support policies

Answer 54

Instruments used to favour a sector in the economy e.g CAP

Question 55

Specific tariffs

Answer 55

Are levied as a fixed charge for each unit of good imported

Question 56

Ad valorem tariffs

Answer 56

Taxes that are levied as a fraction of the value of the imported goods

Question 57

Export subsidies

Answer 57

Payment to a firm or individual that ships a good abroad

Question 58

Balance of payment

Answer 58

Records transactions of exports/imports and financial assets

Question 59

Uncovered interest parity condition

Answer 59

States that the return from investing in the domestic and the foreign assets market must be the same